A record number of minimum wage workers are being underpaid, following reports that major retailers have fallen foul of the rules because of uniform policies or salary sacrifice schemes.

In a letter to members of the British Retail Consortium on 17 December, Greg Clark said he had been considering claims that pay regulations could be “overly complex” and invited retailers to give him further evidence of issues they found.

Last week Iceland Foods was accused of underpaying staff who participated in a voluntary savings scheme by approximately £3.5m a year during a six-year period. HM Revenue & Customs said the earnings of the scheme’s participants technically fell below the statutory minimum rate, despite workers being able to withdraw the money that had been deducted from their weekly earnings in full during the Christmas period.

HMRC also expressed concern about the retailer’s shoe policy, suggesting that shop floor staff who bought their own shoes would have seen their pay drop below the minimum wage.

Under the 2015 national minimum wage regulations, deductions from pay “which are for the employers’ own use and benefit” will be considered when deciding whether an employer has underpaid workers.

While tackling the exploitation of vulnerable workers is a priority, balance is needed to ensure employers who are doing their best to comply are not unfairly penalised, particularly where workers suffer no financial harm” – Charlie Barnes, RSM Law

“Iceland’s case is therefore likely to hang on whether the pay it deducted from workers could be defined as for Iceland’s own use and benefit. Arguably, if the money deducted was kept in an escrow account which Iceland could not use and gained no benefit from, it would not count as a deduction for NMW compliance purposes,” he said.

“If we assume the workers volunteered to have deductions from their pay to spread the cost of Christmas and received that pay back at some point to spend at Christmas, one can see Iceland’s issue. The workers chose to have deductions from pay made and suffered no financial harm.”

“In that scenario, if Iceland were required to pay the affected workers back £21m, the workers would effectively be getting a windfall as they would be paid again for work they had already done. That would surely be a perverse outcome.”

“While tackling the exploitation of vulnerable workers is a priority, balance is needed to ensure employers who are doing their best to comply are not unfairly penalised, particularly where workers suffer no financial harm,” he said.